Interview: Royal Caribbean International CEO on China and the High-Tech Future of Cruising

Andrew Sheivachman, Skift

- Nov 10, 2015 7:10 am

Skift Take

By focusing on improving onboard experiences and connectivity, Royal Caribbean International is looking to attract the next generation of cruisers. It just so happens they expect those cruisers to come from China.

— Andrew Sheivachman

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When Americans think of cruises, they’re more likely to picture families huddled around buffet tables and gaudy concerts on the Lido deck than bespoke art and bumper cars.

With its classy sci-fi aesthetics and focus on high-touch technology, Royal Caribbean International’s Quantum-class ships present a new fully-connected paradigm for the future of cruising.

Royal Caribbean International was also one of the first Western cruise brands to deploy in China, and now boasts the largest fleet of any individual brand serving Asia.

Royal Caribbean International president and CEO Michael Bayley has worked for Royal Caribbean in a variety of roles over the last 30 years, including stints rejuvenating Celebrity Cruises and building out the company’s sales and marketing offices in Europe and Asia.

“We’ve got market opportunities like China that could be viewed as unlimited,” Bayley told Skift onboard the Anthem of the Seas last week. “If you look at capacity overall in the total industry, for the whole industry for cruise, you probably would find that even though capacity is growing with all of these new ships, the vast majority are actually going to Asia and China, which is in the beginning of the development.”

Bailey took the reins at Royal Caribbean International last year, and has presided over the latest chapter of the company’s pivot East to send its newer ships to serve the Asian cruise market.

Continue reading our full conversation with Bayley, below.

Skift: Royal Caribbean International regularly gets voted one of the top cruise lines in the world. Clearly, you’re doing something right, especially when other lines are moving along the same pattern in the same markets.

Bayley: A lot of it is the culture of the company and the people in the company, especially the ship-board people. We’ve got people who have been here longer than I have who really live and breathe what we do. What’s great about my job or my role is the fact that, after coming through all of this and being part of it, to be able to direct the future is exciting. It’s great.

In many ways, I try to use the same philosophy that we used when we built our new class of ships. Respect the tradition because people love the company. Try to think how you can improve everything. Then, try to think how you can really accelerate the brand with new ideas and new thinking.

Skift: While cruising earns high satisfaction and is such a good value, about 4% of Americans cruise and only about 20 million people globally. How do you think about that when you’re looking towards the future? How do you tweak how you design the ships and tweak the marketing to attract more cruisers?

Bayley: There’s certainly new markets. Of course, the new market that everybody wants to talk about is China. It’s the inevitable new-to-cruise play. Every single person pretty much in China who cruises within the industry or with Royal Caribbean is new-to-cruising, brand-new. We’re already seeing that that is allowing us to redefine how they experience that with Royal Caribbean. The other element of this is the new-to-cruise segment within the existing more mature market, like the American market.

Depending on who you talk to there’s potentially another 35 to 40 million people, who would, if they were spoken to in the right way, come and experience cruising. Quantum Class, a combination of Quantum Class, our new campaign, our move to digital is our way of trying to speak differently to this group of customers. This class of ship with all of the technology capability that it has is very relevant to so many people in terms of their ability to interact with it.

Skift: Speaking of China, what do you think about looking into the China market? What point do you think that it’s going to become a really mature market? Royal already has a bunch of ships there. Is there a point like 2020 looking forward that you think that the masses of Chinese middle class will be ready to go and you’ll be there for that?

Bayley: In the early ’70s when we started Royal Caribbean, there were a whole bunch of ships floating around, not really cruise ships, but more liners converted and what have you. Back then in the early ’70s, there were maybe 300,000 people cruising per year. Today, out of North America there’s 11 or 12 million, which in the grand scheme of things is not a lot. That’s been the journey. Six years ago in China we sourced about 3,000 or 4,000 Chinese guests. Next year will be maybe 700,000.

If you think about the American and then in the markets all around the world that we’re in, it’s a very similar story. You start with a number and then it’ll grow and grow. They use the phrase China-speed, which is fairly true. It seems to be growing in an extraordinary way. To answer your question, what is the answer? Penetration in the U.S. market, 4 percent or 3 percent, whatever it is, just take that number and move it to China. 4 percent of 1.3 billion is 40 million people a year. There’s 11 million in America, but it took 30 or 35 years to get there. Here’s China, so maybe 40 million in what time?

They talk about China converting, this big transition they’re going through now becoming a real consumer society. There’s a lot of opportunity there.

Skift: I’m curious about some external factors because cruising is a great value. You’re probably able to command good rates on a ship like this because it’s new. What do you do if the economy hits a rocky patch next year with the election? People don’t want to have to pay more for ancillaries.

Bayley: We’ve been doing this now for 40 years. During that 40 year period we’ve been through multiple cycles, maybe not boom and bust. But thinking about 2008, the world was afire.

That year after the crash was a tough year. We saw a huge drop in pricing because of all of the issues with people losing their jobs. Like all things, it comes back. Certainly, our fortunes are tied to these geopolitical and macroeconomic issues. If the economy is doing well, we’re going to do well. The beauty of our model, of course, is that our assets move. It’s very rare that all markets go down together. At the moment, Latin America is very wobbly. Brazil is having a terrible time.

The American market is quite strong. The Chinese market is strong. The European market goes up and down. We have that ability, which in many ways doesn’t mitigate the risk entirely, but helps a little bit. One thing that we’ve always done when we’ve been through the tough times as well as the good times is we’ve always been very mindful of the quality of the delivery of our product.

We typically will work on, if we have to go through a period where we’re dramatically reducing costs because of these shocks, then we’re extremely protective of the product. We want to be known, trusted as a quality cruise line. Over time, we’ve always made those decisions.

Skift: Are you guys doing any stuff that’s innovative in land packages? It seems like people want to get off the ship. Royal Caribbean’s new ad campaign literally says, “This isn’t a cruise.” There must be a renewed focus on the other experiences, right?

Bayley: We’ve started looking in more detail at our private destinations. We don’t have any announcements to make now. We have a couple of private destinations, but in the coming months and whatnot we’ll start talking more about what we’re planning on doing with that kind of experience. Then, the idea of packaging other experiences around cruise is something that we’re also working on, but have nothing tangible to say.

Skift: Travel agents are so integral to booking a cruise in America. Could part of just reaching more people be, not a move away from travel agents, but reinventing how people are booking and how they’re finding out about and discovering cruising?

Bayley: Travel agents for us were, are and will continue to be an integral part of our model. We talk openly about channel of choice, but with the scale of our business we have to be accessible to the marketplace through every channel that there is. Each channel has to be optimized so that it’s the most efficient for the customer to access our product and trade is a huge part of that. Lots of people are totally comfortable with that idea.

We certainly spend, I would say, more time now in the digital universe of trying to understand how we can optimize that media and that channel. We’re seeing more and more of that in terms of how we talk into the marketplace. That’s inevitable. For the travel agents, we have an advisory board that we meet with on occasion and we talk about these topics. One of those topics is how we’re going to remain relevant.

Skift: I’m a millennial, so I wouldn’t use a travel agent.

Bayley: Right, but the perception about cruising has been around since the beginning of cruising. It used to be, what was the saying? Overfed and nearly dead, that’s cruising. It’s boring. It’s expensive. There’s nothing to do. You just eat all day. Actually, you do eat all day if you want to, and it can be great.

Those perceptions existed decades ago. Part of the Royal Caribbean thing was and is this idea of innovation like iFLY, FlowRider, rock climbing walls, things and ideas and activities that are quite different that make you think, “Well, hang on a second. That doesn’t make any sense. That’s strange.” We have to continue our journey into trying to show and explain to people cruising is really not what you think it is.

It is, by far, our biggest challenge in terms of going into the marketplace and getting people. I interact with lots of people on the cruises who are in love with the idea. They get it. They know it. They love it. Then, this whole category, like my yoga instructor who I invited to come, she was horrified by the idea.

She’s up in New York with a friend. I said, “Would you like to come on board our new ship?” She’s like, “No.” I’m like, “Well, why?” “Well, I don’t want to be, it’s kind of boring.” I’m like, “Have you actually gone to our website and looked at this stuff?” “No.” “Would you do that?” “Well, maybe.” A couple of days later she said, “Well, I kind of looked. Well, what’s the iFLY thing?”

Skift: So the new innovations piqued her interest.

Bayley: I’ve never worked so hard to give something away. I must have spent two weeks. In the end, I told her, “Listen, I’m going uninvite you because you’re driving me crazy now with this.” I said, “If you’re coming, you’re coming. If you’re not, just stop asking me questions.” We went on and on and on. It made me think.

I was thinking, “This is it. This is the thing.” There’s just this complete absolute war. It takes, this is the beauty of the travel agent ironically, but not necessarily for the millennials. It takes someone to talk to you, to explain and say, “Hey, no, cruising is not like that. It’s totally different.” The digital, our Come Seek campaign, these types of things where we invite everybody to come for a few days and just see for themselves and blog it and talk about it are just another way of trying to explain to people it’s really quite different.

Skift: Does your focus on technology play into that too? Besides the WiFi, the activities onboard are spectacular, especially compared to your competitors.

Bayley: It’s the DNA of Royal Caribbean. It’s all part of the innovation journey, which has been part of what we’ve done for many years in terms of how we design and bring product to market. The Quantum Class was another step forward with innovation, but there was a lot of focus on technology and innovation.

That also speaks about this move to be more digital in terms of how we’re looked at in the marketplace. Certainly, the connectivity piece, which is really quite radical in terms of being able to just be like you are at home with streaming and digital and whatnot is a big part of it.

Skift: When you look to the future, these new ships are advanced. They’re bigger but more efficient. They cost less money to run. They burn less fuel. And everyone is building ships. Do you anticipate selling off some ships or do you plan to keep growing? Or will there be a certain point where you’ll think, “We have these great ships that are performing well and we’re just going to go forward with these?” It’s an arms race in a way because everyone is building, building, building.

Bayley: I don’t think anything is linear. It’s just not that simple. We’ve got market opportunities like China that could be viewed as unlimited. If you look at capacity overall in the total industry, for the whole industry for cruise, you probably would find that even though capacity is growing with all of these new ships, the vast majority are actually going to Asia and China, which is in the beginning of the development as a market with the consumers. That changes it in terms of the idea that it’s an arms race. Another way of looking at it is to say to yourself, “Well, how many cruise ships are in the world?” I don’t know by the way. It’s maybe 300.

A very loose definition of a ship, say there’s 300. Really? That’s nothing. If you think about it within the context of vacation, hotels, resorts, go to Orlando or Cozumel or Macau or anywhere and think about all of the people who go on vacation to those places and how many hotels and resorts there are. Then, is 300 ships a lot in the world?

It’s nothing. We just think it’s big because we’re in it and lots of people who are in it say, “Oh, look. They’re building all these ships.” Really, I don’t know. I don’t know the answer to it. 66% of the planet is water, sea, ocean.

Skift: Who knows? More will probably be covered at some point too the way we’re going. There you go.

Bayley: In the ’60s there was a project from the Kloster family who were involved in the creation of NCL. They had that project to build a floating city. You look at ships like Oasis Class and how they’ve evolved. They’re huge floating cities on the way, but maybe in 50 years there will be ginormous man-made floating multi resort city with a landing strip. Look at Dubai. Who knows where it’s going?

Skift: Finally, I’m wondering if there’s anything when you came into the role that you were said, “Carnival and Norwegian are doing this well. Why aren’t we doing this?” Or if there’s any things that you think that they’re doing well?

Bayley: We’re moved by our customer feedback. What our customers tell us, and we have relatively good systems of gathering feedback from our customers. We pay a lot of attention to what people tell us separate from the new build process which is slightly different. We take what our customers tell us, but we also try to understand what’s happening into the future.

We’re also very aware of our competition. We shop our competition. We sail on our competition. We send people on a regular basis to all of our competitors. We try to understand is there anything that they’re doing that we think is something that is well-received by customers? Should we consider doing the same thing, adopting it, and what have you?

The same thing for resorts and hotels around the world, we’re always monitoring and watching what’s occurring. We feel like we’re a leader, but we’re not an arrogant leader. We don’t think we’re a leader because we’re the best. We think we’re a leader because we’re always paying attention to what our customers want. That’s what sets us apart.

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Photo Credit: Pictured from left to right are Captain Claus Andersen; Michael Bayley, President and CEO, Royal Caribbean International and Emma Wilby, Godmother Anthem of the Seas. Simon Brook-Webb Photography / Royal Caribbean International